Repeal of the Bush Tax Cuts Would Lower Tax Revenues

Repeal of the Bush Tax Cuts Would Lower Tax Revenues
by Stephen Gutowski
08/03/2011

During his press conference announcing the debt-ceiling deal, President Obama's press secretary, Jay Carney, made it quite clear that the Left's obsession with ending the Bush tax cuts is far from over. In fact, Carney seemed to signal that the only thing the Obama administration is going to push for in the so-called "super committee" is an end to the cuts. Its argument is that the Bush tax cuts haven't performed well, and all things being equal, going back to the higher tax rates would bring in greater revenues.

But how have the Bush tax cuts performed?

First off, we need to understand that the revenues resulting from tax structures are completely dependent on the state of the economy. The better the economy performs, the more money a tax structure brings in. So to make things fair, lets compare the best year in terms of (inflation adjusted to 2005 dollars) tax revenues from the pre-Bush tax cuts era and our current era.

Following this rule, the best pre-Bush year on record for (inflation-adjusted) tax revenues was under Clinton in 2000. The best year on record for (inflation-adjusted) tax revenues under Bush was 2007.

Now one of the most common standards used by liberals (and even some conservatives) for how well a tax structure is doing is how much money it brings in as a percentage of the gross domestic product (GDP). In other words, many judge a tax structure by how much of the economy it eats up.

This. Is. Absurd.

A tax structure ought to be judged by how many (inflation-adjusted) dollars it can bring in. Ideally you could even go a bit further and say the best tax structure brings in the most revenue with the smallest burden on the economy. After all, shouldn’t the goal of an efficient tax system be to get the most money with the least effect on the economy?

By either of these standards, 2007 bests 2000. In 2007, tax receipts (in 2005 dollars) totaled $2.414 trillion, whereas 2000 tax receipts (in 2005 dollars) only totaled $2.310 trillion. Additionally, in 2007 taxes were only 18.5% of GDP, but in 2000 they were 20.6%. In other words, the best year after the Bush tax cuts was better than the best year before them.

The fact is in 2007, under the Bush tax cuts, we had a larger economy AND greater tax revenue than at any time since at least 1940, which is as far back as the Tax Policy Center keeps score.

We could certainly go around in circles forever debating the pros and cons of theoretical tax systems, and I certainly wouldn’t say that our current tax structure, even post-Bush tax cuts, is the ideal. However, it is extremely important to take a look at how real-world reforms have performed and exactly what that means. The facts clearly show us that a real-world conservative supply-side tax reform has produced a better, more efficient and more effective tax system.

Therefore, if you were to repeal the Bush tax cuts and bring us back to Clintonian tax levels, you would not see an increase in tax revenues but rather a decrease. That's right, all things being equal, the Bush tax structure brought more money into government coffers than any in history. The evidence that raising tax rates will inevitably lead to a tax system with a greater burden on the economy and fewer actual revenues is undeniable.

No responsible person interested in growing the economy and tax revenues ought to be for repealing the Bush tax cuts.